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Determining Your Financial Situation

When starting the car buying process this is the first and most important step. Before starting your car search you need to know how much you can spend before you will be able to know how big of a price tag you can afford. This step is vital because it will keep you from jumping into a car payment that you cannot afford. If you where to jump into a car payment that you can’t afford the odds are that it may damage your credit score or leave you “car poor.”

To start this process you will need to create a monthly budget, this budget does not have to be complex, in fact is actually pretty easy to calculate. First add your fixed expenses up, these expenses are typically easy to identify because they normally have the same expenditure each month. Examples include, rent, power, cable, phone and so forth. Next add up your other “variable” expenses such as food, gas, entertainment or anything else. Finally add your fixed expenses to your variable expenses and subtract that number from your net monthly income (after tax). This is the maximum amount that you can afford for your car payment.

In the next step you need to be aware that when purchasing a car there is often many more costs that what is seen on the price tag. These extra fees often include licensing, registration and other “dealer fees,” and you can’t forget your monthly car insurance cost, gas and maintenance. Once the car price is totaled up the payback is made up of two periods. One is the down payment, which is paid up front. Next are your monthly payments.